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UGro Capital April 2022 NCD issue review (May apply)

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•    This is the 2nd debt offer from UGCL since November 2021.
•    After posting growth from FY19 to FY21, it has marked declining trends in performance for 3QFY22.
•    Its NPAs are on the rise and raise concerns. 
•    For this debt offer company has given the mandate to three merchant bankers which has raised eyebrows.
•    Considering lucrative coupon rates and A ratings, investors may consider parking of funds.

U Gro Capital Ltd. (UGCL) - erstwhile known as Chokhani Securities Ltd. - is a non-deposit taking systemically important NBFC registered with the RBI and its equity shares are listed on NSE and BSE. The company's mission is to provide access to financing to the underserved MSME sector, which is critical to Indian economic growth and employment creation, and yet suffers from a chronic lack of affordable, efficient and sustainable credit availability. 

UGCL has shortlisted 8 sectors after careful filtration of 180+ sectors in an 18-month process involving extensive study by market experts of macro and microeconomic parameters. Its eight shortlisted sectors include Healthcare, Education, Chemicals, Food Processing/FMCG, Hospitality, Electrical Equipment and Components, Auto Components and Light Engineering. The company added a ninth sector - Micro Enterprises, to the list of sectors in FY2020-21.

U GRO's Business Model hinges on marrying the traditional branch-based lending approach with modern FinTech based Lending. It is an amalgamation of multiple business models and brings in expertise through the effective use of technology. It brings in the sector, geographical and product specialization and combines with new-age technology platforms.

As of December 31, 2021, it had a network of 82 branches comprising 14 Prime and 68 Micro Branches serving 16594 customers with 944 employees. Through these branches, U GRO caters to the entire spectrum of MSME borrowers. As of the said date, its total loan portfolio stood at Rs. 2588.90 cr. 

To part finance its needs for the purpose of onward lending and financing its business (at least 75% of the net issue collections) and general corporate purposes (up to 25% of the net issue collections), UGCL is coming out with its 2nd debt offer of Rated, Secured, Senior, Transferable, Redeemable Non-Convertible Debentures (NCDs) of Rs. 1000 each at par to mobilize Rs. 50 cr. The company has a greenshoe option to retain oversubscription to the tune of Rs. 50 cr. and thus the overall size of this issue is Rs. 100  cr. The issue opens for subscription on April 07, 2022, and will close on or before May 06, 2022. The minimum application to be made is for 10 NCDs (i.e. Rs. 10000) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Post allotment, NCDs will be listed on BSE and NSE. UGCL is spending Rs. 3.21 cr. for this debt issue. 

This issue is jointly lead managed by Sundae Capital Advisors Pvt. Ltd., Tipsons Consultancy Services Pvt. Ltd., and Trust Investment Advisors Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue. MITCON Credential Trusteeship Services Ltd. is the Debenture Trustee to the issue. 

The issue is rated ACUITE A+/Stable by Acuite Ratings and Research Ltd. The rating is not a recommendation to buy, sell or hold securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The rating agency has a right to suspend or withdraw the rating at any time on the basis of factors such as new information. 

This debt offer has tenors of 18 months, 27 months and 36 months. It offers coupon rates ranging from 10.00% to 10.40% with Monthly or Quarterly payment of interests as per the series selected by the investors. There are no Put and Call options for this debt issue. No portion of this Issue has been reserved.

Surprisingly, for its maiden debt offer in November 2021, it appointed just one merchant banker, whereas for this debt offer it has given the mandate to three merchant bankers and that raises eyebrows. 

For the last three fiscals, it has posted total income/net profits of Rs. 43.94 cr. / Rs. 3.95 cr. (FY19), Rs. 105.14 cr. / Rs. 19.52 cr. (FY20) and Rs.153.34 cr. / Rs. 28.73 cr. (FY21). 

As per unaudited financial results, the company has earned a net profit of Rs. 8.47 cr. on a total income of Rs. 199.19 cr. for the first nine months of FY22 ended on December 31, 2021. 

Its net NPAs grew from 0.00% for FY19 to 1.75% in FY21, and for 3QFY22 it stood at 1.98%. UGCL's debt-equity ratio of 1.84 as of December 31, 2021, will stand enhanced to 1.94 post this debt issue. 

Conclusion / Investment Strategy

After posting growth in its financial performance from FY19 to FY21, it has posted a sharp decline in its net profit for 3Qs of FY22 despite growth in its top line and that raises concern. It has A rating and coupon rates are lucrative. This debt offering mandated three merchant bankers raising eyebrows as the last offer had just one merchant banker. Investors looking for steady income may consider small investment in this NBFC’s debt offer.

Review By Dilip Davda on April 4, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

The Ugro Capital NCD April 2022 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if Ugro Capital NCD April 2022 worth investing. The Ugro Capital NCD April 2022 Note sets the NCD expectations in systematic way which tells you if Ugro Capital NCD April 2022 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Ugro Capital NCD April 2022 by providing NCD recommendations i.e. subscribe, avoid and neutral.